Market Update:

Chips, AI, and the Trade War

Ongoing disputes between the US and China over chip sales are shaking up tech markets, hitting stocks like Nvidia and AMD. Despite this, demand for AI technology keeps rising, which means top chipmakers could still have strong long-term potential and might even be undervalued right now.

If the US and China reach a trade deal, we could see a sharp rebound in these stocks. Even with current headwinds, the best quality companies usually come out of downturns stronger-so focusing on quality and growth remains key.

Nvidia’s Situation

Nvidia recently announced that new US rules blocking its advanced AI chip sales to China could cost the company about $5.5 billion. The H20 chip, made for China, was a big revenue driver. After the news, Nvidia’s stock fell about 7%. This matters because China was a major customer, so losing that market means less short-term revenue and explains the quick drop in the stock price.

AMD Faces Similar Issues

AMD is also feeling the impact. Its MI308 chip, which competes with Nvidia’s, can’t be sold freely in China anymore, and AMD’s stock dropped by a similar margin.

Still Strong AI Growth

Even with these setbacks, AI demand is booming worldwide. Other countries and industries are still eager for advanced chips, so companies like Nvidia and AMD could still do well in the long run. If the trade war ends, these companies could quickly recover lost sales and see their stock prices bounce back.

Chart Check: Nvidia and AMD

Looking at Nvidia, back in 2022 the stock dropped 70% during a bear market. This time, it’s down about 43%. There could be more downside if tariffs and recession worries continue, but our bullish outlook hasn’t changed. Right now, Nvidia trades at a forward P/E of 24.69, much lower than its three-year average of 36.6, making it look cheap given its profit potential.

The stock is still in an uptrend, and we’re waiting to see how the trade war plays out before making any big moves. At $100, Nvidia looks like a bargain-below $80 would be an even better opportunity.

https://www.tradingview.com/x/T8OAyv0e/

For AMD, the stock has dropped about 67% from its highs and is showing oversold conditions, finding support around $77. There’s heavy trading volume at this level, which suggests buyers are interested. Whether this is the bottom remains to be seen-it depends on how the economy and earnings hold up.

AMD is now trading at a forward P/E of 21.8, making it look very cheap compared to the past. Its fundamentals remain solid, so we’re watching closely and waiting for more clarity before buying.

https://www.tradingview.com/x/OK03bqG8/

The Bullish Case for AI

Global AI growth is accelerating at an unprecedented pace, with the market valued at around $638 billion in 2024 and projected to soar to $3.68 trillion by 2034-a more than fivefold increase.

Forecasts are calling for 26–38% annual growth through 2030. The “Magnificent 7” tech giants-Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla-are betting big on this trend. According to Goldman Sachs, they’re set to spend a record $365 billion on data centres in 2025, more than double what they spent before the AI boom started with ChatGPT.

This massive investment shows their confidence in AI’s future and supports the long-term bull case for both AI technology and the top tech stocks driving this transformation.

Risks to Watch

If the trade war drags on, there are real risks for investors:

•      Rising prices: Tariffs make electronics and chip-based goods more expensive, leading to inflation.

•      Supply chain issues: Trade tensions can cause delays and shortages, hurting production and sales.

•      Slower tech growth: Higher costs for building data centres and developing AI could slow innovation.

•      Lower profits: Companies like Nvidia and AMD are already seeing lower earnings and stock prices, and this could get worse.

•      Economic slowdown: Both the US and China could see weaker growth, fewer jobs, and less spending, which could spill over into global markets.

•      China is finding ways to reduce the impact by trading with other countries, which could drag out the dispute.

The Bottom Line

If the trade war isn’t resolved soon, expect higher prices, slower tech progress, and weaker profits for chipmakers, along with a greater risk of a broader economic slowdown. Still, the long-term outlook for quality chipmakers remains strong, especially as AI demand continues to surge.

Key Takeaways

•      Short-term pain: Nvidia, AMD, and other chip stocks are under pressure because of lost China sales.

•      Long-term potential: The AI boom is still going strong, offering plenty of growth ahead.

•      A trade deal would help: If the US and China work things out, expect a quick rebound.

•      Don’t panic: The long-term story for quality chipmakers remains strong.

In summary, we see the trade war as a temporary setback. While it’s unclear how much damage current tariffs have done, we expect the real impact to show up over the next three to six months. For now, we’re staying cautious-holding extra cash and watching for opportunities to buy high-quality stocks like Nvidia and AMD when the time is right.